Wednesday, September 26, 2018

Growth holding up in Asia and the Pacific, trade tensions pose risks

Growth remains stable across most of developing Asia due to robust domestic demand, buoyant oil and gas prices, and a consolidation of India’s growth rebound. But escalating trade tensions will test the region’s resilience, underscoring the importance of efforts to bolster trade ties among its countries, according to a new Asian Development Bank (ADB) report.
In an update of its flagship annual economic publication, Asian Development Outlook (ADO) 2018, ADB maintains its forecast that the region’s gross domestic product (GDP) will grow at 6 per cent in 2018. The growth forecast for 2019 is trimmed by 0.1 percentage points to 5.8 per cent.
"Growth in the region has held up to external challenges, helped by strong domestic demand in the People’s Republic of China and India,” said ADB chief economist Yasuyuki Sawada. “The biggest risk to continued growth comes from the disruption of international production linkages caused by a further escalation of trade tensions, but Asia’s growth should remain resilient to the direct effects of the trade measures taken to date.”
Strong domestic demand is driving the region’s largest economies, while buoyant prices for oil and gas are fueling growth at energy-exporting countries like Kazakhstan. However, emerging headwinds cast uncertainty on the region’s future growth trajectory. In addition to escalating trade tensions, tightening global liquidity could further cloud prospects over the coming year.
Industrial economies’ growth will reach 2.3 per cent in 2018 and 2 per cent in 2019, maintaining the April 2018 forecast. Consumer spending and job creation is driving strong growth in the US. However, recovery in the euro area and Japan was sluggish early in the year, prompting slight downward revisions to their 2018 growth projections. The US is expected to normalise monetary conditions further to preempt inflation.
Solid domestic consumption and rapid expansion of services helped to deliver strong economic performance in China over the first half of the year. The growth outlook for 2018 remains unchanged at 6.6 per cent but is revised down to 6.3 per cent for 2019, reflecting lower demand growth and the risk of escalating trade tensions. Supply-side reform supported by monetary and fiscal measures will help to keep growth on track, the report notes.
India’s economy continues on a robust growth path. Its growth forecasts are unchanged at 7.3 per cent for 2018 and 7.6 per cent for 2019 as the temporary effects of the demonetisation of large banknotes and the introduction of the national goods and services tax abate as expected. The impact of rising oil prices is offset by robust domestic demand and rising exports, particularly of manufactures. Depreciation of the rupee and volatile external financial markets pose challenges, as does accelerating inflation though tighter fiscal policy will help quell inflationary pressures.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members; 48 from the region. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in cofinancing.